Unlock Working Capital with Invoice-to-Pay Automation

David Disque
Unlock Working Capital with Invoice-to-Pay Automation

Is your business feeling “the squeeze?”

High interest rates are tightening the financial flexibility of many businesses.

When interest rates are high, borrowing costs rise, access to capital becomes more constrained, and profitability may decline, reducing the cash a business has on hand to run its daily operations.  High interest rates can even contribute to a slowdown in economic activity, further impacting cash flows.

At times like these, businesses must solidify their working capital, to prevent being caught in a “cash crunch.”  Working capital-minded businesses may try to line up new sources of funding, reduce their reliance on high-interest loans, implement tighter credit policies, or reduce inventory levels.

But automating the way that your business processes and pays the invoices it receives from suppliers may be one of the most compelling approaches to navigating the working capital issues that businesses are likely to face in a high interest rate environment.  This article will show you why.


How high interest rates can affect working capital

High interest rates can have a big impact on a company’s working capital.

  • Higher borrowing costs on the short-term loans and lines of credit that some businesses rely on to fund their working capital needs. Businesses with maturing debt may face higher rates when refinancing existing obligations.  The more money a business pays in interest expenses, the less working capital it is likely to have available to run its day-to-day operations.
  • Less access to credit as lenders become more cautious about extending credit. Difficulty obtaining credit or renewing credit facilities can limit a company’s working capital financing.
  • Reduced cash flows as cash-strapped customers take longer to pay their invoices. Delayed customer payments reduce cash inflows and trap working capital in accounts receivable.
  • Higher inventory carry-costs for businesses that rely on financing and short-term loans to purchase inventory. High interest rates can increase the cost of inventory overhead.
  • Lower profit margins as businesses use more of their cash to cover interest costs. Lower profit margins may mean a business has less money to invest in growth-driving initiatives.

Left unchecked, working capital issues can make it hard for a business to operate and grow.


How manual AP processes impact working capital

Manual and semi-automated approaches to processing and paying supplier invoices expose and exacerbate the working capital challenges that businesses face in a high interest rate environment.

  • Poor visibility. In a manual or semi-automated AP environment, critical data is not captured, captured information may be incomplete or inaccurate, information is not timely, data is poorly organized, systems are fragmented, and staff cannot see the location of a check once it is mailed.  As a result, CFOs can never be sure where the company’s cash flow stands.
  • High overhead. Every business wants to do more with less when high interest rates are taking a bigger bite out of its budget.  But manual and semi-automated approaches to processing invoices and paying suppliers can contribute to higher costs.  Consider all the paper, toner, envelopes, postage, and labor involved in paying suppliers with checks.
  • Slow invoice approvals. Manually routing invoices for approval is time-consuming and error prone.  Invoices frequently are routed to the wrong approver.  Many invoices become lost or misfiled.  Invoices can languish at the bottom of an approver’s physical or email inbox.  An approver may inadvertently delete an invoice before reviewing it.  And an exception – such as an invoice that is missing a PO number or other critical information – can result in weeks of back-and-forth emails and telephone calls for AP staff to resolve the issue.  Slow invoice approvals result in late payment penalties and potential supply chain issues.
  • Missed early payment discounts. Slow invoice approvals and delayed payments create a bucket of lost and missed opportunities to monetize the accounts payable function through the capture of early payment discounts.  Keying invoice data, coding general ledger information, matching invoices to POs can grind the invoice-to-pay cycle to a halt.
  • Errors and mistakes. Duplicate payments, over-payments, and other errors are inevitable when a business relies on manual and semi-automated approaches to processing invoices and paying suppliers.  A single typo, transposed number, or duplicate invoice that’s not caught can result in costly errors and mistakes that can chip away at a company’s profitability.
  • Payment delays. It can take days or weeks for a check to be printed, wind its way through the U.S. Postal Service, and settle to a supplier’s bank account.  And it’s not uncommon for a check to become delayed or lost in the mail.  All the while, a buyer must keep cash in a bank account to cover the check, earning significantly less interest than other investment vehicles.
  • Inaccurate cash planning. The combination of unpredictable mail delivery times and the significant amount of time required for a supplier to process and deposit a printed check makes it impossible for a buyer to know for sure when a check payment will clear their bank account.  This uncertainty in timing complicates cash management and cash forecasting.
  • No opportunities for cash-back rebates. Paper checks and other conventional approaches to paying suppliers don’t offer a business any opportunities to earn cash-back rebates.

With senior management counting on AP to help guide the business through the high interest rate environment, it’s time to rethink traditional approaches to processing invoices and paying suppliers.

That’s why more businesses are automating their invoice-to-pay process.


How invoice-to-pay automation improves working capital

Invoice-to-pay platforms automate the receipt, capture, routing, posting, payment, and reconciliation of any invoice submitted by suppliers – all integrated with a buyer’s ERP or accounting software.

Automating the invoice-to-pay cycle helps businesses unlock working capital in several ways.

  • Lower overhead. Integrated invoice-to-pay platforms eliminate the manual, repetitive tasks that drive up costs.  Paper and electronic invoices are aggregated on a single platform for standardized processing.  Optical character recognition (OCR) and other technologies and processes extract invoice header and line-item details with 99.5 percent accuracy.  Invoices are automatically matched with PO and receipt information in the buyer’s ERP or accounting software package.  Matched invoices are posted directly to the buyer’s ERP or accounting software.  Unmatched invoices are digitally routed based on pre-configured business rules.  A single file uploaded from the buyer’s ERP or accounting software is all it takes to pay suppliers in their preferred method, whether it’s via virtual card, ghost card, ACH, ACH+, or check.  And payments are automatically reconciled in the buyer’s ERP in real-time.
  • Enhanced visibility. Integrated invoice-to-pay platforms put smart insights into cash flows and corporate spending at the fingertips of decision-makers.  Accrual reports are instantly available to users.  Graphical dashboards display the real-time status of invoices and Key Performance Indicators (KPIs).  Drill-down capabilities enable users to identify cash flow trends and uncover potential issues.  Mobile access keeps decision-makers in-the-know while on-the-go.  Ad hoc reports make it easy for users to create reports as business needs and economic conditions change.  Suppliers can use a portal to see the status of invoices and payments 24/7/365.  And seamless integration with ERPs and accounting software packages enables finance leaders to get 360-degree visibility into transactions and suppliers.
  • Better liquidity management. An integrated invoice-to-pay platform makes it easy for buyers to manage the timing of payments to maximize liquidity and maintain a healthier cash position.  Payments for approved invoices can be instantly initiated or scheduled to be paid to terms or at another time.  And electronic payment methods – which can arrive in a supplier’s bank account much sooner than paper checks – provide buyers with an opportunity to negotiate longer payment terms with suppliers, without damaging strategic relationships.
  • Early payment discounts. The faster approval and payment workflows facilitated by integrated invoice-to-pay platforms create more opportunities for buyers to capture early payment discounts offered by suppliers.  Many suppliers offer discounts on the invoice due amount in exchange for faster payment.  The faster the payment, the bigger the discount, in many cases.  Even discounts of 2 percent on invoices can add up fast.  By taking advantage of these discounts, buyers can reduce their costs and improve their working capital position.
  • Supply chain finance. The supply chain finance options built into some invoice-to-pay platforms enable buyers to accelerate payment to suppliers, without impacting the cash on their balance sheet.  Buyers may also share in fees paid by suppliers for faster payment.
  • Cash-back rebates. Integrated invoice-to-pay platforms enable buyers to earn significant cash-back rebates on qualifying virtual card and network payments to suppliers.  Many AP departments earn enough in cash-back rebates to completely offset their overhead and return value to the business, transforming AP into a profit center.  And AP departments can begin receiving rebates soon after beginning live production with their invoice-to-pay platform.
  • Accurate cash forecasting. Integrated invoice-to-pay platforms enable buyers to manage their working capital more accurately.  Accrual reports are readily available.  Buyers always know when a payment will be deposited to a supplier’s bank account.  The minimal float time associated with electronic payments reduces the possibility of overestimating available cash.  And there’s less chance of errors and disputes that will tie up a buyer’s working capital.
  • Stronger supplier relationships. Timely and accurate payments position a buyer as a company that suppliers want to do business with.  Stronger supplier relationships provide buyers with leverage to negotiate better payment terms and other working capital benefits.

Together, these benefits can help a business navigate a high interest rate environment.


Elevate your invoice-to-pay process

A high interest rate environment can create big working capital challenges for businesses.  But integrated invoice-to-pay platforms provide a powerful tool for freeing up cash on existing revenues, managing cash flow more effectively, maximizing liquidity, and earning cash-back rebates.  With invoice-to-pay automation, a business can improve its working capital, no matter the interest rates.